HR outsourcing (HRO)

HR outsourcing (HRO)

Human resources outsourcing, usually referred to as "HRO," is the practice of contracting out certain aspects of human resources management.

An employer and an external third-party provider enter into a contract whereby the employer delegates administration and accountability for some HR services to the external provider. Employers have access to a wide range of HR outsourcing options. Options range from being as narrow as outsourcing just a single element of a single HR function, such as applicant tracking for affirmative action goals, to being as broad as outsourcing the entire human resources division.



Human resources can be outsourced in a variety of ways, including:

Business process HR outsourcing (also known as BPO), where an external vendor may handle the entire human resources department or only specific HR tasks like hiring or payroll management.

Shared service HR outsourcing, where just the administrative or transactional aspects of HR's duties are outsourced to a third party. The direct interaction with employees may fall under this category.

Application (and facilities) service HR outsourcing, the technology (and physical) infrastructure is managed by outside vendors to support human resources tasks.

Outsourcing human resources or some of its processes to an external provider is a major business decision, because, despite the fact that it may be economical, it poses new risks, such as:

  • Control loss
  • Effects on the relationship between employers and employees
  • decline in flexibility
  • Failure to provide cost savings
  • Legal or regulatory requirements
  • Industrial relations issues

Any HR outsourcing partnership should have a service level agreement that controls how it operates. This will outline any fines for non-compliance as well as the performance requirements that must be met by both parties. To reduce the risks mentioned above, a service level agreement is an essential document that needs to be carefully negotiated.

Managing people effectively is essential for achieving organizational performance. This is more true than ever in the new knowledge economy we live in today. The choice to outsource human resources should therefore not be made hastily.

In a variety of situations, outsourcing HR services can offer the company measurable advantages, such as freeing up HR workers' time to focus on a strategic role that supports organizational performance.


Advantages and disadvantages of HR outsourcing

  • Potential benefits of HR outsourcing
  • Reduced cost
  • Increased efficiency
  • Access to improved HR IT systems
  • Higher-quality management data (including human capital metrics)
  • Internally, there is no access to HR expertise.
  • Increased responsiveness and adaptability
  • philosophic justifications (for example, the organization is outsourcing a number of support functions, including HR).
  • Lowered risk allows for more smart HR resource operation.

Potential pitfalls of HR outsourcing

  • What you don't understand, don't outsource. The problem won't be solved by the HR outsource provider until much later (and at a cost), and the provider's solution might not be the best one for your company.
  • It is still the organization's job to provide effective people management strategies and general oversight of the delivery of HR services.
  • HR outsourcing agreements are increasingly frequently long-term (five- to 10-year contracts are not unusual). Before entering into any contractual arrangement, it is crucial to comprehend the organization's present and long-term business plans as well as any potential shifting company (and hence risk) profiles. This makes it easier to escape being bound by bad contractual agreements.
  • Loss of local expertise and procedures in favor of those carried out by the outsourcer

What HR Functions May Be Outsourced?

You can outsource all parts of HR rather than outsourcing some and keeping others in-house, which is one of the main advantages of outsourcing your HR activities. Even though you might think you have the means to keep some HR services in-house, doing so is rarely a good idea. By outsourcing all of them, you can save the time and money you need to concentrate on expanding your company. You can save up some of your time by outsourcing the following HR tasks:

  • EMPLOYEE RELATIONS & COMPLIANCE
  • PAYROLL SERVICES
  • WORKERS’ COMPENSATION
  • EMPLOYEE BENEFITS
  • STAFFING & RECRUITMENT
  • EMPLOYEE SCREENING & BACKGROUND CHECKS
  • PRE-EMPLOYMENT SKILLS TESTING
  • SEXUAL HARASSMENT TRAINING

To Whom May You Outsource Your HR Functions?

If you do decide to outsource some of your HR functions, the question becomes, who do you outsource them to? Different types of organizations exist where you can outsource your HR duties:

  • HUMAN RESOURCES ORGANIZATIONS (HROS)
  • PROFESSIONAL EMPLOYER ORGANIZATIONS (PEOS)
  • ADMINISTRATIVE SERVICES ORGANIZATIONS (ASOS)
  • STAFFING & RECRUITING AGENCIES

Focus on Your Core Business, Your Passion

The success of your business is greatly influenced by HR. Don't skimp on your HR management given the multitude of duties HR is tasked with. However creating an HR department for your business and expanding it as it expands can put a tremendous burden on your resources. Most firms will eventually start outsourcing some, if not all, of their HR functions as they expand. Overall, HR management will be more effective and efficient as a result of its greater cost-effectiveness.

You can concentrate more of your time and resources on issues that are directly related to the expansion of your business by outsourcing many of the duties that HR is in charge of.

 Reference

Nystrom M (2011). 6 Benefits Of Outsourcing HR Functions. o2employmentservices [Online]. Available at https://blog.o2employmentservices.com/6-benefits-of-outsourcing-hr-functions. Accessed on 1st December 2022.

Chiang, Y.-H., & Shih, H.-A. (2011). Exploring the effectiveness of outsourcing recruiting and training activities, and the prospector strategy’s moderating effect. The International Journal of Human Resource Management, 22, 163-180.

SHRM Org. (2011).Outsourcing The HR Functions. Resources and tools[Online]. Available at https://www.shrm.org/resourcesandtools/tools-ansamples/toolkits/pages/outsourcingthehrfunction.aspx. Accessed on 1st December 2022.

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